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Market Study

East Lake Street Corridor Minneapolis, Minnesota

Joe Urban, Inc. June 27, 2012

June 27, 2012 Spencer Agnew Longfellow Community Council 2727 26th Avenue South Minneapolis, MN 55406 Dear Mr. Agnew: Attached is our report assessing the market conditions and recommendations, solutions and strategies for the East Lake Street Corridor in Minneapolis, Minnesota. We appreciate this opportunity to provide a market analysis for this project. The East Lake Street Corridor suffers from high commercial vacancy for a variety of reasons, compounded by the recent recession and street reconstruction. We believe there are a number of strategies the Longfellow Community Council can pursue to achieve a more vibrant corridor. Specifically, the neighborhood, in conjunction with business along the Corridor must ask “what kind of corridor do we want?” A more robust corridor planning effort, the engagement of the private development and non-profit sectors, and leveraging current demand for residential housing could all benefit the Corridor. We thank you again for the opportunity to work on this assignment, and hope the information proves valuable. Do not hesitate to call with any questions you have. Sincerely,

Sam Newberg wrote this report, based on market research and fieldwork between September 2011 and June 2012.

The following people and organizations provided data for this report:

City of Minneapolis Hennepin County Metropolitan Council Stantec U.S. Bureau of the Census ESRI Various business and property owners, brokers, leasing agents and developers along the Corridor GVA Marquette Advisors CoStar

The client, the Longfellow Community Council, (LCC), seeks to understand the reasons and solutions for excessive commercial vacancy along the East Lake Street Corridor between Hiawatha Avenue and the Mississippi River in Minneapolis, Minnesota. Significant commercial vacancy has occurred prior to and during the recent recession and rebuilding of Lake Street. Our Corridor Condition Analysis revealed a number of notable retailers including grocery stores, pharmacies, and restaurants. The Corridor can be broken down in to three main sections (West, Middle and East) and into smaller sections and nodes within those. Across the corridor, the commercial parcels along East Lake Street contain a wide variety of uses and building types, styles and ages. Retail tenants along the corridor are diverse and don’t generally create synergies for customers. As well, building styles often do not relate well to the pedestrian-friendly street. Commercial vacancy is 14.9% for the 932,000 square feet of space along the Corridor. The greatest amount of vacancy is in the middle section, and to the contrary, there is virtually no vacancy east of 41st Avenue. Available spaces, buildings and sites vary significantly in size, condition and price. Our analysis of spending surplus and leakage, traffic counts and incomes, preliminarily indicates that there is overall sufficient commercial space along the corridor, and that even a reduction of commercial square footage along the corridor could be acceptable in the marketplace. Our conclusions, solutions and strategies extend beyond the scope of simply awaiting a market recovery and filling commercial space. Solutions include allowing and encouraging additional residential development along the Corridor, and that some redevelopment of parcels can be residential-only. Market rate or affordable residential units would be met with market acceptance in any number of locations along the Corridor, provided the project “pencils out.” Furthermore, additional residential development adds potential customers to retailers along the Corridor. Choose one section or node along the Corridor and focus attention on it. The right development can be a catalyst for additional interest from tenants or the development community. We also recommend a vision and planning process by the community and businesses that encompass the entire corridor, and that form-based codes are but one possible tool to better encourage development of buildings that share more in common with one another in terms of height, appearance and use. More certainty with a vision and the code better encourages private redevelopment and investment to occur, and better supports the vision of the neighborhood.

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Executive Summary East Lake Street Market Study June 27, 2012 

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Making redevelopment of vacant properties work is a challenge whether it consists of renovating existing buildings or building new. Consider financial incentives, engaging a catalytic developer to assist with land assemblage and/or focusing on a catalytic development that will encourage future development to occur. Two examples of potential catalytic developments are the northwest corner of 26th Avenue and Lake Street and the Riverside grocery store at 39th and Lake, as the former would set an urban design precedent for development in the light rail station area and the latter would provide a retail anchor that would attract customer traffic and generate residential interest as well. Look to national precedents for urban design to find creative infill solutions that work on small sites. Development is challenging along the East Lake Street Corridor, but possibilities exist that could generate interest from developers and add to the vibrancy of the corridor.

The Longfellow Community Council (the Client) asked Joe Urban, Inc. to analyze the causes of, and solutions for, excessive vacancy along the East Lake Street Corridor in Minneapolis. The report presents the results of our research and findings and points to a variety of potential solutions. This section looks at current conditions on the East Lake Street Corridor, and breaks it down in to smaller nodes and sections in order to better analyze existing similarities and suggest more targeted solutions. This section also includes an analysis of past studies and land use planning efforts for sections of the corridor. EAST LAKE STREET

Overall Orientation
For purposes of this analysis, the East Lake Street Corridor stretches from Hiawatha Avenue on the west to the Mississippi River on the east. We analyzed all commercial parcels fronting on Lake Street and those that are contiguous with Lake Street frontage. The map below shows all analyzed parcels shaded in red and key retailers and destinations along the corridor.

While restaurants are generally scattered along the Corridor, several are clustered around the 36th Avenue and 27th Avenue areas.

Residential Development While the East Lake Street Corridor is primarily commercial in nature, a variety of residential development has occurred over time. The yellow dots on the map on the following page vary by size and indicate the relative magnitude of each development. We counted 276 units along the Corridor. The 53 units located in the West River Commons project (at West River Road) and 80 units at Hiawatha Commons (north of Cub Foods and Target) account for approximately half of the total.

Introduction and Corridor Condition Analysis East Lake Street Market Study June 27, 2012 The following map shows the location of apartments along the corridor.

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Automobile-Related Businesses The following map shows automobile-related businesses shaded in brown. These include auto repair, auto parts stores, automobile sales, and any business with a drive-through.

Among the many historical reasons for visiting Lake Street was to shop for a car. While no new car dealerships remain, several used car dealerships still operate. As well, two auto parts stores are present, with a third set to open soon, one car wash and several restaurants and banks have drivethrus. While automobile-related uses are generally allowed, there are exceptions, like within a halfmile of the light rail station where a pedestrian-overlay district exists. Furthermore, the rebuilding of Lake Street was done in a pedestrian-friendly manner, and the City of Minneapolis comprehensive plan would generally like to see development that better matched the streetscape in this Corridor. However, it should be noted that these businesses have little to no vacancy. Pedestrian-Friendliness While a pedestrian-friendly streetscape is important for beauty and to encourage walking and biking, so is the pedestrian-friendliness of the buildings that face the street. The more doors and windows per block, the friendlier a street is for walking, strolling, shopping and living. The following map shows the number of doors per block that face Lake Street.

In his 2010 book “Cities for People” prominent Danish urbanist Jan Gehl measures the pedestrianfriendliness of urban streets on a 100-meter (328 foot) basis. Since blocks along Lake Street are

approximately 300 feet, we applied his criteria to our analysis. The following bullet points list how many doors each block must have to fit a scale from active to inactive:      15-20 – Active 10-14 – Friendly 6-10 – Mixture 2-5 – Boring 0-2 – Inactive

The map on the previous page shows that no blocks along East Lake Street are considered active, and that just one is friendly. Several blocks, particularly near 27th Avenue and 36th Avenue, are a mixture, or “pretty friendly.” However, just eight of the 46 blocks in this study are considered pretty friendly or better, while a resounding 24 (more than half) are inactive. The city requirements call for a minimum of one door per building and one window every 25 feet of building frontage. SECTIONS AND NODES For purposes of analysis, we divided the East Lake Street Corridor in to a variety of smaller subsections in order to better recommend solutions. The following bullet points show the three main areas, then sub-areas:    Hiawatha Avenue to 28th Avenue – West Section o Big Box Node o 27th Avenue Node th 28 Avenue to 37th Avenue o 28th Avenue to 34th Avenue o 36th Avenue Node 37th Avenue to the Mississippi River o 39th Avenue Node

Big-Box Node Within the West Section is the Big Box Node, which consists of the Target, Cub Foods, Rainbow Foods, nearby retailers and large surface parking lots. The following bullet points describe the Big Box Node:   Low vacancy but large amounts of surface parking 264,742 square feet of retail space on 790,178 SF of land (18.1 acres). o Overall 0.34 Floor Area Ratio (FAR – the ratio of total building square Surface Parking Lot Along Lake Street in Big Box Node – Target Store at Right

footage to site size). Infill opportunity Redeveloping the entire site at 50 units per acre would yield 900 housing units Redevelopment of smaller portions of site could yield 100-200 units (Hiawatha Commons is 80 units)

27th Avenue Node The 27th Avenue Node consists of the four corners of 27th and Lake, three of which are historic buildings with retail on the ground floors and office and some residential above.  Coliseum Building at 27th Avenue Node

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Until recently, the buildings are the northeast and southeast corners of the intersection were bank-owned. Bank-owned buildings present challenge with little interest in Tenant Improvements (TIs) for potential tenants. However, the Coliseum Building (northeast corner) was recently purchased by a new owner that may have better access to capital to improve the building. Parking is an issue (unfortunate with excess parking one block away) Good character, traffic (car and pedestrian), and visibility

28th Avenue to 37th Avenue – Central Section
The stretch of the East Lake Street Corridor from 28th to 37th Avenue, the Central Section, represents some of the highest vacancy on the corridor. The following are significant or notable retailers and destinations in the Central Section.      U.S. Bank Northern Sun Walgreens River Lake Hardware Merlin’s Rest

28th Avenue to 34th Avenue Section The 28th to 34th Avenue section in particular has high vacancy, the fewest doors and the least visual continuity.   Infill opportunities Five significant vacancies on 93,216 square feet of land. For example, that could support 107 housing units at 50 units per acre. McMahon’s Pub site is approximately 0.5 acre, and could support 25 units at 50 units per acre. Few visual anchors

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Introduction and Corridor Condition Analysis East Lake Street Market Study June 27, 2012 36th Avenue Node The 36th Avenue node has significant vacancy but also buildings with generally good character, many doors and potential.  

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Good retail character Nine vacant spaces within two blocks o 33,770 square feet of vacancy 40,075 square feet of land (0.9 acre) available Merlin’s Rest and River Lake Hardware key anchor tenants Vacant CTC space at 3400 East Lake occupied Ebenezer Fellowship and vacant space at 3424 East Lake occupy 33,977 square feet of land. If assembled, it could contain 39 units at 50 units per acre. 3542 East Lake (NW corner) is key vacancy at corner of 36th and Lake Victory Christian Center occupies an architecturally significant building

37th Avenue to Mississippi River – East Section
The area from 37th Avenue to the Mississippi River, the East Section, is the healthiest section of the East Lake Street Corridor. It has the lowest vacancy overall, although those that do exist are significant. It also has an excellent example of infill development with West River Commons, a mixed-use project built in 2005.     The Craftsman El Norteno Ace Hardware West River Commons (shown at right) includes 53 apartments, three townhomes, and four retail spaces that include Dunn Bros Coffee and the Longfellow Grill. Its design and mix of uses sets a high standard for future development along the Corridor.

39th Avenue Node A key node in the Eastern Section is the 39th Avenue Node. A key vacancy is the GC Peterson Building where a proposed 14,000 square foot grocery store would be located.  Six spaces are vacant or for sale within two blocks: o GC Peterson Building o Former SuperAmerica o Former Taco Bell o Video Lease space o 4009 East Lake, a small vacant building with nearly 10,000 SF site

The East Lake Street Corridor has a large variety of uses, and building types, ages and conditions. The portion of Corridor between Hiawatha Avenue and the Mississippi has very little rhyme, rhythm or synergy with regard to building appearance or retail tenants. There are significant vacancies that will be addressed in the next section.

East Lake Street Corridor Condition Advantages and Disadvantages
The following is our assessment of strengths/weaknesses/opportunities/threats (SWOT Analysis). Strengths/Opportunities    Sections with existing character such as near the 27th Avenue and 36th Avenue Nodes Inexpensive buildings and sites compared to Uptown area, Grand Avenue Recent development such as West River Commons that serve as examples of how to design and develop projects on infill sites

Weaknesses/Threats      High vacancy Small, shallow sites make redevelopment physically difficult Many redevelopment opportunities don’t “pencil out,” could require subsidy Many older buildings functionally obsolete A rebuilt and very attractive public realm along Lake Street that is pedestrian-friendly but a significant number of buildings that aren’t pedestrian-friendly

This section assesses the commercial market conditions in the East Lake Street Corridor, including the types of retail/commercial buildings and their positioning in the marketplace, and how the Corridor fits in to the broader south Minneapolis and Twin Cities retail/commercial market. RETAIL TYPOLOGIES In order to assess the retail/commercial market along East Lake Street, we must identify what type of retail. Table 1 shows various retail typologies according to Bob Gibbs, a prominent retail market consultant who authored the recently-published “Principles of Urban Retail Planning and Development.”

Based on Table 1, we conclude that a significant proportion of commercial buildings along the East Lake Street Corridor are essentially a series of individual corner stores of 1,500 to 3,000 square feet. There are some commercial buildings that are or could be classified as convenience centers, which are slightly larger at 10,000 to 30,000 square feet. These retailers located along East Lake Street draw from a very local radius of one mile or so, or are destination retailers with less customer traffic but a larger draw area. As well, these categories of retailers rely on a combination of off-street and on-street or otherwise shared parking, something that is commonly found along East Lake Street. The Rainbow Foods and adjacent in-line retailers are an example of a neighborhood center, and the Target/Cub Foods area of the Big Box Node could be considered a community center. These are not only larger developments but also draw from a larger radius of two to perhaps six miles. These retail centers require substantial off-street parking of four or more stalls per 1,000 square feet of space. However, we note that in the East Lake Street Corridor there is a higher rate of transit usage, and therefore not typical utilization of off-street parking in the Big Box Node.

There is substantial commercial vacancy along the East Lake Street Corridor, as shown on the following map. The map shows the location of each commercial vacancy as well as the size or magnitude of the vacancy, from under 1,000 square feet to more than 10,000.

Many of the commercial vacancies are clustered around the 27th Avenue Node, and between it and the 39th Avenue Node. At the time of the survey in October 2011, there were no vacancies east of 41st Avenue, and even as of June 2012 there is only one small vacancy to the east. Thus, most of the vacancies are concentrated between Minnehaha and 41st Avenues. The chart at right shows overall square footage of commercial space, vacant space and the percent vacant by section, including West, Middle and East, as defined in the previous section. We found a total of 932,000 square feet of commercial space along the East Lake Street Corridor. Of that, 139,000 square feet is vacant, or 14.9% overall.
Overall Commercial Space SF Vacant % Vacant 511,959 45,561 8.9% 248,778 67,534 27.1% 171,957 26,146 15.2%

West Middle East

Total

932,694

139,241

14.9%

As is shown in the table, the West section has the most commercial space by a two-to-one margin over the Middle section, and vastly more than the East section.

Although the West section has significantly more commercial space, the Middle section actually has more vacant square feet, with a 27.1% vacancy rate, compared to a healthier 8.9% rate for the West section. The 15.2% vacancy rate for the East section is largely due to vacancies at and near the 39th Avenue Node, as there is no reported vacancy east of 41st. The table at right shows overall retail space within the Corridor. Of the 932,000 commercial square feet, 777,000 is considered retail, mostly due to the fact that it is on the ground floor.
Overall Retail Space SF Vacant 441,479 18,681 191,043 43,914 144,505 26,146

Of the retail space, nearly 89,000 square feet is Total 777,027 88,741 11.4% vacant, or 11.4% of the total. Again, the Middle Metro Area 5.9% section of the Corridor has the greatest amount of vacancy, with a rate of 23%. The West section has just a 4.2% vacancy rate, mostly because the Big Box Node has little vacant space. The East section has a vacancy rate of 18.1%. This compares to an overall Twin Cities metro area vacancy rate of 5.9%. The table at right shows 155,000 square feet of office space in the Corridor. Office space is considered to include second floor space with no sidewalk or parking frontage, banks, or buildings that otherwise lack the windows or entrances to encourage the sales of goods.
Overall Office Space SF Vacant 70,480 26,880 57,735 23,620 27,452 0

West Middle East

% Vacant 4.2% 23.0% 18.1%

West Middle East

% Vacant 38.1% 40.9% 0.0%

Total

155,667

50,500

32.4%

Metro Area 17.0% The West section contains the most office space along the corridor, largely due to the office space found in the upper floors of buildings at the 27th Avenue Node. The overall office vacancy rate is 32.4% versus a metro area average of 17.0%.

Available Space
Table 2 on the following page shows a variety of available and vacant commercial space or land in the East Lake Street Corridor.      A variety of spaces and sites are available, including retail or office spaces within multitenant buildings, standalone commercial buildings, vacant buildings that could either be retenanted or become sites for redevelopment, and vacant land. The size of vacant spaces range from 1,371 to 20,180 square feet. Lease rates for available space range from $5 to $30. (We note that the $30 space, the former Blockbuster video store at 26th Avenue and Lake Street, will soon be occupied by AutoZone, but we are not aware as to whether or not the lease rate of $30 was achieved.) Several standalone buildings are for sale, ranging in price from $219,000 to $750,000. One site exists at 30th and Lake, nearly one-half acre in size.

The chart below shows a breakdown of all commercial space in the East Lake Street Corridor, including the 932,000 square feet of commercial space plus the Minneapolis Police Department Sector 3 station and the East Lake Library.        Target, Cub Foods and Rainbow Foods alone account for 24% of all space on the corridor Restaurants make up 7% Leased office space is 11% of all space Civic (police and library) and auto-related uses each account for 6% of all square footage Vacant retail space represents 9% of all space Vacant office represents 5% of all space Other retail (non-restaurant, big-box, auto-related or vacant) space accounts for 32% of all space. It is possible to break down Other Retail in to categories, for example, such as pharmacy or hardware, but we did not do that for purposes of this study.

RECENT SALES AND LEASING ACTIVITY The formal date of the survey summarized earlier in this section is September 2011. The analysis is representative of commercial market conditions on Lake Street at that time. In the intervening

months several changes have occurred that, while not necessarily changing the vacancy rates or conclusions of this report, are nonetheless worth reporting.           The Queen’s Grill opened in the Coliseum Building A check cashing outlet and chiropractor opened at the southeast corner of Lake Street and 27th Avenue Forage, a furniture restoration and sales store, is planned to open at the southwest corner of 41st Avenue and Lake Street. The owner of the former Riverside Grocery store on Franklin Avenue (where the Seward Co-op is now located) is proposing to purchase the GC Peterson building and adjacent properties to create a new 14,000 square foot Riverside Grocery store. McDonald’s is proposing to reconstruct their store on the existing site AutoZone is planning to open a store in the former Blockbuster space at 26th Avenue and Lake Street Culvers and CVS have both expressed interest in an East Lake Street location, but to our knowledge neither have found a suitable location and no deals are in the works at this time A buyer has purchased the building at the northwest corner of 36th Avenue and Lake Street with plans to open a furniture store, but we have no further information at this time There is reportedly an interested buyer for the former Taco Bell at 41st and Lake, although we have no further information One offer for the former SuperAmerica store at 39th and Lake is to use the parking lot as truck storage for a truck rental service. To our knowledge, that is not a serious offer and there are no formal offers for that building/site at this time.

LEAKAGE/SURPLUS ANALYSIS We downloaded information from ESRI, a demographic provider, to analyze the spending patterns of household dollars for households located within one mile of the East Lake Street Corridor. ESRI’s analysis takes in to account population, households and median income in the Draw Area, and breaks down the income figures in to various household expenditure categories. These categories include housing expenditures (rent, mortgage, etc.), transportation (transit, car, etc.), utilities, furniture, food, and other necessities. The purpose of the analysis is to understand whether households within one mile spend their dollars on Lake Street or travel farther to do so. “Leakage” is an undersupply of particular retail categories (based on households and income in the Draw Area relative to existing retailers there), and “surplus” indicates a possible oversupply. Within these categories, ESRI can tie expenditures with the amount spent within the immediate neighborhood, and also accounts for existing retail stores within the Draw Area where these dollars are spent. For example, the immediate neighborhood has one gas station, and as a result a disproportionate amount of dollars are spent outside the Draw Area for gas. This is called

“leakage,” and any retail category with leakage is an indication of a potential retail opportunity, whereas any “surplus” is a reason to exercise caution or perform more research. Based on our analysis of retailers that are under/over-supplied along the Corridor, we calculated the total household dollars currently spent for each category, divided by a figure of $300 per square foot, a conservative figure provided by the Urban Land Institute’s Dollars and Cents of Real Estate, a trade publication for commercial real estate. In other words, these are the amount of retail dollars translated in to real estate terms and can be tied to the potential for retailers to occupy vacant space on the Corridor. Based on households and their spending potential within one mile of the Corridor, the following categories have spending “leakage” calculated on a square footage basis:    60,000 SF motor vehicle/parts dealers (AutoZone is evidence of demand) 50,000 SF gas stations 3,000 SF misc./other

There are several caveats to this analysis. For example, as noted in the retail typology analysis in Table 1 of this section, Cub Foods and Rainbow Foods draw from a trade area of up to six miles, not the one mile analyzed in this survey. Therefore, available groceries within a four- or six- mile radius may be undersupplied. We do believe there is a slightly more upscale market niche for the proposed Riverside Grocery store not currently provided by Cub and Rainbow. As well, restaurants typically are destinations and draw from a larger area. However, we note that the 75,000 overall oversupply of retail space is a figure to keep in mind for later sections of this report. TRAFFIC COUNTS The table at right shows our analysis of traffic counts at key nodes along the East Lake Street Corridor, as well as the total number of households
Node Hennepin/Lake Chicago/Lake Lyn Lake 27th and Lake Ford/Cleveland 50th and France Victoria and Grand 36th and Lake Chicago and 48th Households Within 1 Mile 16,240 14,779 21,003 9,158 6,742 7,208 11,109 12,025 8,122 Median HH Income - 2010 $ 39,639 $ 28,075 $ 37,057 $ 37,540 $ 64,341 $ 85,349 $ 44,876 $ 39,981 $ 61,582 Traffic 35,600 27,900 26,000 23,000 18,900 13,800 13,500 12,900 7,200

and median income of households within one mile. We compared those figures to several notable nodes around the City of Minneapolis and in St. Paul. The table ranks the traffic counts from high to low for the busiest of the two cross-streets, comparing 27th and Lake and 36th and Lake with Hennepin and Lake, Chicago and Lake, Lyndale and Lake, Ford Parkway and Cleveland Avenue, 50th and France, Victoria and Grand and Chicago and 48th Street. The map below shows the nodes and results as well.

The results show that the Lake Street/27th Avenue intersection has a Lake Street traffic count in the middle of the range but less than points farther west on Lake Street. The number of households and income is in the mid-range as well. Factoring in traffic on Hiawatha Avenue, this is an indication that the Big Box Node is suitable for large-scale retail according to this analysis. The 36th and Lake intersection ranked very low in terms of combined traffic counts, density and incomes compared to the other corners. This is an indication that this and other intersections along the Corridor may have an oversupply of retail space.

A common complaint heard by property owners along East Lake Street is taxes and assessments are too high, especially considering the recent reconstruction of the street and sidewalk. Overall, commercial properties in the city, on and off Lake Street, are taxed at approximately 3.5% of value. In other words, the taxes are the same rate for a used auto sales lot as they are a large multitenant property, although the amount paid varies considerably based on valuation. Assessments for the Lake Street rebuilding are applied on a front foot basis, or the amount of frontage on the street. In other words, the assessment would be the same whether a site had a used car lot or a four story apartment building. That cost can be spread much farther over a more densely developed property. For example, we calculated that the assessment for RW Auto is $0.50 per square foot of building on that site, whereas the assessment at West River Commons, spread across nearly 100,000 square feet of building, is just $0.01 per square foot. Therefore, whereas the tax rate does not favor low versus high density, the assessment encourages densification. It should also be noted that a quick calculation of the city’s tax collections indicates a 100-unit apartment building would increase the city’s collections by 0.4%, an indication that increased density and infill reduces the tax burden for all. PARKING Another common complaint from property owners and parking is not sufficient. A common ruleof-thumb for urban retail space is 3.5 to 4 spaces per thousand square feet of retail space. The city requires 3 per 1,000. While parking must be convenient, it can be on- or off-street. Parking counts and availability varies wildly between properties along the Corridor, but West River Commons, for example, has 4.7 spaces per 1,000 square feet, a sufficient number. Another thing to keep in mind is at the typical suburban mall there is 100 feet between the closest parking stall and the door to the mall, much less the store a customer is visiting. By that analysis, Merlin’s Rest, which has no off-street parking on their site, does have approximately 10 onstreet spaces within 100 feet of its door, and additional parking in a shared lot across 36th Avenue. By that measure, nearly every retail space along the Corridor has at least one parking stall within 100 feet. Parking varies by property, but parking also costs money, which adds to the potential cost for a tenant or redevelopment. As well, shared parking opportunities exist along the Corridor, and we encourage careful analysis of true parking need and creative solutions to achieve it.

The summary of this section concludes that extensive commercial vacancy exists across a number of space, building, site sizes and prices. While there has been recent retail leasing activity, it has not been sufficient to lower the overall vacancy rate. There also may be an oversupply of net retail space along the Corridor. Traffic volumes indicate there may not be additional demand for high-profile retail development that calls for substantial traffic counts. While parking is lacking in some locations, it is more plentiful when on-street parking is included.

This section presents our conclusions from the previous two sections on the current conditions and commercial market analysis for the East Lake Street Corridor. This section includes key conclusions as well as potential solutions and strategies to solve the glut of vacancies in the Corridor. CONCLUSIONS

Key Conclusions
 The Corridor is a major east/west thoroughfare across the City of Minneapolis, with Midtown and Uptown to the west and Marshall Avenue across the Mississippi River to the east. It has historically been a strong retail street for south Minneapolis. Buildings vary in age from the 1920s to the present day, and there is little building form or uses that tie the Corridor together. There are also major differences in building condition across the Corridor. The Corridor can be broken down in to West, Middle and East sections, and broken down further to nodes and sub-sections in order to identify potential areas of focus. There is nearly 1 million square feet of commercial space along the Corridor, of which approximately 15% is vacant. Nearly all vacancy is west of 41st Avenue. Spaces, sizes, prices/rents and styles vary considerably. Our surplus/leakage and traffic count analysis indicate there may be a slight excess of commercial space in the Corridor.

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SOLUTIONS AND STRATEGIES We believe several strategies are worth pursuing. Some have to do with focusing on recruiting desired tenants to the Corridor, while others have less to do directly with the commercial real estate market and more to do with vision and planning, residential development, a nodal approach and potential incentives to encourage redevelopment.

Residential Development
 Our survey found there to be very little residential development along East Lake Street. While substantial residential development has occurred in Midtown and Uptown to the west, very little has occurred along the East Lake Street Corridor despite apparent demand.

Recent projects such as Hiawatha Commons and West River Commons, as well as the VOA building, all report high occupancy, and are an indication of demand for supportive, affordable and market rate housing along the corridor. We recommend the Client engage and recruit residential developers to consider additional projects in the Corridor.

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Chart 5 shows demographic trends nationwide in the next 20 years and their potential impact on real estate development in that time, particularly the demand for various types of housing.    The emerging demographic trends of an aging baby-boom population coupled with their children, the echo boom, entering the housing market, represent significant numbers of households statistically. As baby-boomers age, if even a small proportion of them choose to downsize their housing, it will create significant demand for smaller homes, condos and apartments. The echo boom is demonstrating a higher preference than past generations for urban living and increasingly delaying the purchase of a home. Coupled with a significant existing inventory of larger single family homes, it is forecast that by 2030, there will be substantial demand for 8 million new attached housing units (apartments and condominiums), 12 million townhomes and 39 million single-family homes on small lots (similar to the pattern of housing in core city areas like the neighborhoods surrounding the East Lake Street Corridor). There is also a forecast oversupply of single-family homes on large lots (suburban-style).

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The national trends outlined in Chart 5 are likely to have a local impact as demand for housing increases in the urban core cities and along commercial corridors like East Lake Street.

Vision and Code
 Although there have been several studies and plans for various locations along the Corridor, not all have been formally adopted by the City of Minneapolis and none encompass the entire corridor. Thus, there is no overarching vision for the corridor. While the City’s Comprehensive Plan encourages development like West River Commons, the zoning code allows too wide a range of options for single-story and automobile focused development. A developer considering a dense mixed-use project has no certainty that the parcels to either side won’t have a vastly different form that might hurt the leasing or sales potential of the redevelopment. We encourage a community-based planning process for the Corridor that is formally adopted by the City and translated in to a stronger zoning code that takes in to account nodes and the sections in between, providing more certainty and guidance to eventual projects. o There must be community and business buy-in to a vision o Ask “what is the place you seek to create on Lake Street?” o Ask “why should we make it easier to build what we envision?”  A form-based code is one potential solution. A form-based code can more succinctly guide what development should look like and how it should relate to surrounding buildings. Building heights and form can vary along the corridor, perhaps delineated by nodes and stretches where like forms should exist. o One existing form-based code along the Columbia Pike in Washington D.C. was created alongside the existing zoning. Developers have a choice between the two, and in the eight years it has been in place, all developers have chosen the simplified form-based code. o Consider working with the city to make the development process easier for the sort of development desired in the corridor vision. Examples include:  Administrative review for any parcel less than one acre  Simplify process for larger projects – if the project meets key criteria based on the principles of the vision, it should be approved  No parking requirement for projects less than one half acre – let the market decide You must also convince the City why it should prioritize East Lake Street.

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Node and Section Approach
 Choose one or two nodes or smaller stretches of the East Lake Street Corridor on which to focus. For example, a form-based code could be applied to better guide development

around the 27th Avenue or 36th Avenue Nodes so as to preserve existing retail character, but those improved nodes could encourage other nearby development.  Consider downsizing or eliminating retail in some places. Potential areas include the 28th to 34th Avenue Section. A very good example exists at West River Commons, where residential units are located directly on the street. Residential infill development would not only fill in vacant or underutilized parcels, but also provide more customers for existing retail spaces. A focus on a node or section could better unify the look and massing of buildings that line that portion of the Corridor.

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Other Strategies
    Increase the role of the Lake Street Business Improvement District to include marketing and recruiting of businesses. Use vacant storefronts for temporary uses such as art installations or other activities that put them in a positive light. Network with food cart owners who may be seeking long-term permanent space to attract them to East Lake Street. Actively try to encourage/jump start development of the northwest corner of 26th Avenue and Lake Street. It is an underutilized surface parking lot at present and an attractive mixeduse project there would be met with market acceptance and catalyze future development in the area. If the proposed Riverside grocery store opens at 39th and Lake, it could catalyze additional complimentary retail development in the immediate area, or make nearby sites more attractive for infill housing development. A catalytic developer could be a key asset with helping to assemble or write down the cost of development for a key site or parcels along the Corridor. Consider financing mechanisms that encourage developers to redevelop, including tax incentives/abatement, gap financing, tax-increment financing, stormwater, sewer and water fee reductions, and/or a simplified approvals process. However, these may be difficult to implement at the present time considering municipal budget constraints. Are single-family home lots immediately adjacent to commercial property along the Corridor allowed to be redeveloped as part of infill development? It is often politically unpopular to

allow upzoning of stable single family residences for development, but considering the shallow lot depths along East Lake Street, an extra lot width can provide critical acreage for a redevelopment to be feasible.  Consider a neighborhood-based business investment group like that which has formed in northeast Minneapolis. They hope to pool enough capital (100 people investing $1,000 each) to raise $100,000 and purchase a building along Central Avenue to renovate/redevelop or re-tenant.

Pro-Forma Analysis
We analyzed the development potential along the corridor by creating two prospective demonstration pro formas for projects, one redeveloping a site with residential development and the other renovating an existing commercial building. The following is a summary of our criteria and conclusions. Residential Development  In this scenario, an existing 10,000 square foot commercial building on a site slightly more than one-third of an acre o Occupied and in fair condition o Current value - $500,000 o Income $100,000 per year o Content Landlord Redevelop that building in to a 30-unit, three-story apartment building o $5.1 million total development cost o $950 for a one-bedroom unit o Loss of $106,000 per year o Laughing Landlord Redevelop with a 48-unit, four-story apartment building o $6.5 million cost o 50% tax abatement o Stormwater waiver o Site cost reduction due to catalytic developer o Nearby grocery store (+$50 per month rent) o $1,000 rents for one-bedroom unit o Tenants drawn to transit-friendly location that saves $2,000 to $8,000 per year o $24,000 annual profit o Interested Landlord/Possible Investor

What the residential development scenario indicates is that some infill development won’t likely occur without some form of assistance or incentives, but if just a couple forms of incentive or assistance exist, development does become more attractive. As well, the rental figures we used were in the middle of the range for rents we believe could be achieved on the corridor and West River Commons gets notably higher rents. Thus, a project located near the east end of the corridor may generate higher rents and may not necessarily need assistance or incentives to be profitable. As well, an affordable project with one-bedroom units rents for $750 to $800, where the structure of the project was financed using tax credits or another mechanism to ensure affordability, would also be successful and profitable in the marketplace. Our commercial example indicates that given the right available building, a developer to manage its renovation and a tenant willing to pay a lease to cover costs, existing buildings can be redeveloped on a one-by-one basis along the corridor. URBAN DESIGN RECOMMENDATIONS Given the challenges of developing small sites along the Corridor, careful attention must be paid to providing creative urban design solutions that enhance the Corridor. The following bullet points provide good examples of small site infill development from around the country that could help guide design of future projects along the East Lake Street Corridor.  High-quality urban development must have strong urban design principles. Whether the development is mixed-use, retail-only or housing-only, the building must relate well to the public realm in a pedestrian-friendly environment. As this mixed-use project on a half-acre site in Portland, Oregon shows, there are a number of creative ways to design both housing and commercial space on a site.

Conclusions, Solutions and Strategies East Lake Street Corridor Market Study June 27, 2012  As West River Commons at right shows, a strong pedestrian environment can be created even when the development is residential in nature. Residential units should include ground-floor walk-out units. Walk-out units break up the monolithic appearance large residential buildings can create and are more neighborly, even on a busy thoroughfare like Lake Street. As this example from Vancouver at right shows, individual unit entrances do not need to open directly and immediately on to the sidewalk. Clear delineation of private space separated from the public sidewalk can have good results. This arrangement provides the residential unit with outdoor private space with a clear view of the street and activity going by, and could serve as a good example for residential infill development on Lake Street. Every effort should be made to maximize the number of doors that face the public realm/sidewalk. Danish urbanist Jan Gehl believes a “friendly” streetscape consists of 10 to 14 doors per 100 meters (328 feet). Whether they are retail, office or residential doors, the more doors per linear foot of Lake Street enlivens and activates the streetscape. Be attractive, inviting and transparent.

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Conclusions, Solutions and Strategies East Lake Street Corridor Market Study June 27, 2012  West River Commons provides an excellent example of how the public realm should include pedestrian plazas located near high-traffic areas such as buildings, near major roadways and/or prominent private places such as restaurants or cafes. The plaza at West River Commons provides places to sit, visit, meet people, have events, and is a place for public art. Parking is very important, even with most urban retail development. We recommend a retail parking ratio of at least 3.5 spaces per 1,000 square feet of commercial space in the new commercial development, possibly as much as 5.0 for a restaurant use. When possible, we recommend hiding parking behind the building. On-street parking along Lake Street can help offset any slight shortages in off-street parking. Commercial spaces should have pedestrian access from the street and the off-street parking area. It is possible to have a common entrance and hallway from the off-street parking area, but be sure it is well-marked with signage, welllit, open and inviting. This example at right shows reasonable access, but is decidedly uninviting to retail customers. We recommend attractive doors, windows and signage to draw customers inside.

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Conclusions, Solutions and Strategies East Lake Street Corridor Market Study June 27, 2012  Off-street parking can alternatively be placed at the side of retail and/or restaurant establishments. This example at right in Phoenix shows a high-quality pedestrian realm with a restaurant with outdoor seating facing it, and the parking for the restaurant is well-screened yet easily accessible and close to the restaurant entrance. Retail parking, whether it is behind or alongside the building, must be clearly marked from the street. Attractive screening can also mitigate the presence of surface parking lots, greatly enhancing the public realm. Convenient parking is an important factor for any retail space. Again, West River Commons provides a good example. Small, incubator or startup businesses can be a good fit in mixed-use buildings. They can occupy spaces of less than 1,000 square feet and demand very little parking, which can often be accommodated onstreet, yet provide the presence of occupied space and the potential for growth. This example in Austin, Texas shows a building with several small successful incubator spaces but no off-street parking. It is also an example of an attractive and successful project on a half-acre site.

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Conclusions, Solutions and Strategies East Lake Street Corridor Market Study June 27, 2012  This example of a small mixeduse project in Durham, North Carolina shows how tuck-under residential parking and drive lane can be shared with a communal courtyard to provide parking access and open space for residents to spend time. When the trees shown in this image form more of a canopy, they will also provide shade that will improve the courtyard condition considerably. This example from the Bay Area east of San Francisco shows rowhome-style development, or side-by-side units. They are developed to 43 units per acre, which is nearly as dense as apartment-style buildings like West River Commons. This sort of density may be one solution for space constrained sites along the East Lake Street Corridor, and the green courtyards between buildings could provide more intimate private space for residents to enjoy. West River Commons provides a good example of how height and density can be stepped down and better blend in to the surrounding neighborhood. This is particularly important for the East Lake Street Corridor, which has shallow lot depths and single-family homes immediately adjacent.

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